A Copper-Bottomed Crisis? The impact of the global economic meltdown on Zambia | Oxfam

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The global economic crisis is having a serious impact on Zambia. In international trade, Zambia is a one-product economy. Copper accounts for some 70% of its exports, and prices have collapsed. If they stay at their current level, exports will halve in 2009. The most immediate social impact has been the loss of some 5,000 out of a total of some 30,000 mining jobs. Based the author's interviews with a number of international donors, government officials, economists, and civil society organizations in Lusaka this paper documents impacts on Zambia's trade and financial sectors as a result of the global economic crisis. It reflects on the how the Zambian government has limited options to deal with the crisis and considers what the implications of this are to other institutions, both Zambian and international.
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  Oxfam International Discussion Document A Copper-Bottomed Crisis? The Impact of the Global Economic  Meltdown on Zambia Duncan   Green ,   Oxfam   GB   December   2009   Based   the   author’s   interviews   with   a   number   of    international   donors,    government   officials,   economists,   and   civil   society   organizations   in   Lusaka,   this    paper   documents   impacts   on   Zambia’s   trade   and    financial   sectors   as   a   result   of    the    global   economic   crisis.   It   reflects   on   how   the   Zambian    government   has   limited   options   to   deal   with   the   crisis   and   considers   what   the   implications   of    this   are   to   other   institutions,   both   Zambian   and   international.   Disclaimer    Oxfam   International   Discussion   Documents   are   written   to   contribute   to    public   debate   and   to   invite    feedback   on   development   and   humanitarian    policy   issues.   They   are  ʹ work   in    progress ʹ documents,   and   do   not   necessarily   constitute    final    publications   or   reflect   Oxfam    policy    positions.   The   views   and   recommendations   expressed   are   those   of    the   author   and   not   necessarily   those   of    Oxfam   International.   www.oxfam.org     A Copper-Bottomed Crisis? The Impact of the Global Economic Meltdown on Zambia , Oxfam International Discussion Document, December 2009   2 Introduction: A Country on the Brink of Progress 1   At the time of independence in 1964 Zambia was a middle-income country and appeared set to develop into a prosperous nation. However, the combination of a tumultuous world economy and fiscal mismanagement led to rapid economic decline, which continued unabated into the 1980s and 1990s. Average economic growth from 1990–1999 was the lowest in the region, and unemployment and inflation soared resulting in per capita incomes 50% less in 1999 than they had been 25 years earlier. Zambia is now one of the poorest countries in the world, ranked 164   out of 182 countries on the UN’s human development index ( Human Development Report  2009). 59% of Zambians were estimated to live below the poverty line in 2006, down from 68% in 1996. The majority of these people live in rural areas in households headed by women 2  and half the children under five in the country suffer from chronic malnutrition or stunting, a figure that has worsened rather than improved over the last thirty years. 3  HIV prevalence in Zambia is amongst the highest in the world – estimated at 14.3% in 2007. 4  Healthcare remains under-resourced, and ill health is compounded by the lack of access to clean water and sanitation. Access to primary education by contrast has markedly improved, but the quality of the education received is far below what is needed for widespread poverty reduction and girls in particular do not perform well beyond primary school. 1  This paper is based on a visit by the author to Lusaka in February 2009, during which he interviewed a number of international donors, government officials, economists and civil society organizations. The srcinal (March 2009) paper was updated with a series of phone interviews with Zambian-based experts in November 2009. 2  Central Statistics Office (CSO) report, Nov 2007, p.22, http://www.zamstats.gov.zm/ 3  Living Conditions Monitoring Survey (2003), Central Statistics Office of Zambia. 4  Data from the 2007 Demographic and Health Survey as reported in the CSO Bulletin, May 2008, p.16   A Copper-Bottomed Crisis? The Impact of the Global Economic Meltdown on Zambia , Oxfam International Discussion Document, December 2009   3 Of late, however, Zambia’s fortunes seemed to be improving. From 2003-2008, the economy grew at an average of over 5%, driven by a policy environment conducive to new foreign investment, strong macro-economic management and low(er) inflation, and a mining boom. One result was that in 2005 the majority of Zambia’s foreign debt was wiped out, allowing the government to introduce free primary education and remove user fees for rural health facilities. Enrolment rates in primary schools, for both boys and girls, increased dramatically. The widely respected Economics Association of Zambia concluded: ‘for the first time in 30 years, poverty had started to reduce, at least in urban areas.’ 5  But just as hope was returning that Zambia’s fortunes were about to change for the better, the global economy went into meltdown. This paper explores the impact of the global crisis on Zambia and the initial response by government and others. Impacts of the Crisis As in many low-income countries, the financial sector plays a less important role than in rich countries. Although largely foreign-owned, Zambia’s banks were not caught up directly in the global financial crisis of mid–late 2008. However, contagion spread through other channels, notably trade and Zambia’s heavy reliance on copper exports. As recently as October 2008, the Economist Intelligence Unit was predicting 2009 growth of 6%. Since then, predictions for Zambia have largely followed the copper price, falling as the global crisis gripped the commodity markets and then rising as prices rebounded during 2009. The IMF is predicting 5.3% growth for 2009, which is itself considered conservative – the Central Statistical Office puts it at 6.3%. 6  This compares with 5.8% in 2008 and is well above the African average. 5  Business Unusual: the Policy Implications for Zambia of the Global Economic Crisis, Economics Association of Zambia, January 2008, http://www.eaz.org.zm/downloads/ 6  CSO, The Monthly, Volume 80, November 2009   A Copper-Bottomed Crisis? The Impact of the Global Economic Meltdown on Zambia , Oxfam International Discussion Document, December 2009   4 Copper In international trade, Zambia is a one-product economy. Copper accounts for 70% to 80% of its exports, so the sudden and precipitate collapse of copper prices by two thirds, from $9,000 per tonne in July 2008 to $2,900 by the end of the year, was traumatic. Equally unexpected has been the rebound, to $6,800 by December 2009. With the opening of what will be Africa’s largest open cast copper mine at Lumwana in December 2008, mining output is expected to grow by 16% in 2009. 7  As a result, Zambia has got off relatively lightly from the global crisis.  Jobs :  As some relatively high-cost mines suddenly became unprofitable, the most immediate social impact has been the loss of some 8,500 out of a total of some 30,000 mining 8  jobs in the mining sector. That may sound relatively few, but formal sector jobs are scarce in Zambia, and by one estimate, each one supports another 20 jobs in services, suppliers and the wider informal economy. With the rebound in mining, 1,500 of those  jobs have now been regained. Trade and Exchange Rate :  If copper prices stay at their current level, exports will halve in 2009, to about $1.6bn. In 2008, Zambia’s trade account went from surplus of $30m in June to $70m in November. 9  Total exports for 2009 were predicted to fall by over a quarter, from $4.8bn in 2008 to a predicted $4.0bn in 2009. In Zambia, the exchange rate tracks the copper price and the national currency, the Kwacha, has depreciated from K3,200 to the dollar in June 2008 to about K5,500 in February 2009, before recovering to K4,600 by December 2009. Tax :  In terms of poverty, the most important aspect of copper mining is the extent to which it generates tax revenue that the government can then use to fund health, education, infrastructure, social protection and all Zambia’s other pressing needs. The tragedy here is that after decades of 7  CSO, op. cit. 8  2004 estimate, from Alisdair Fraser and John Lungu, For Whom the Wind Falls: Winners and Losers from the Privatization of Zambia’s Copper Mines, 2007 9  Business Unusual, op. cit.
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